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WASHINGTON - The Food Marketing Institute filed testimony yesterday with the House Subcommittee on Financial Institutions and Consumer Credit, urging Congress to investigate what it termed "skyrocketing" electronic transaction fees and the lack of controls on those fees.

September 15, 2004, 08:00 pm

WASHINGTON - The Food Marketing Institute filed testimony yesterday with the House Subcommittee on Financial Institutions and Consumer Credit, urging Congress to investigate what it termed "skyrocketing" electronic transaction fees and the lack of controls on those fees.

John J. Motley, III, FMI s.v.p. of government and public affairs, cited several reasons for retailers' concern:

• There have been 11 credit/debit fee increases in the past 12 months with still more expected this year.

• PIN debit fees are up 267 percent since 1999.

• Card association (VISA/MasterCard) operating rules prohibit merchants from notifying consumers about the fees paid, including those that are a percentage of the transaction amount. Consumers have no knowledge of these hidden fees and thus cannot modify behavior.

According to a 2003 report by the TowerGroup, food retailers handle over half of all electronic credit and debit card payment transactions. "At the same time, the cost of accepting these cards has been skyrocketing, often exceeding the 1 percent net profit margin of the typical grocery store," Motley said.

Motley also encouraged Congress to consider international efforts to control escalating electronic payment fees. "Several countries, including the United Kingdom, Australia, and Israel, and the European Union have initiated caps on fees, changes in operating rules, antitrust/fair trade investigations, regulation of the allowed components of fees, studies and legislation," he said. "With fees that are higher than any of these international competitors, U.S. merchants and U.S. consumers are at a competitive disadvantage unless similar actions are considered in this country."

FMI noted that the marketplace offers no incentives for financial institutions to reduce such fees. "The current interchange fee model is inverted from normal competitive market models -- more volume means more cost," Motley said. "Volume cannot be used to lower costs, [and] merchant fees are invisible to consumers."

This July, FMI called upon the Federal Reserve to investigate fast-rising and proliferating fees for electronic transactions, to explore ways to cap these costs and to disclose them to consumers. A study is expected to be released in 2005.